Leveraged ETF’s: Heads I Lose; Tails I Lose
Wednesday, February 25, 2009 19:38
Some of ProShares leveraged ETF’s have not been keeping up with the underlying index it claims to follow. We ran a quick study of the Pro Shares financial ETF’s and found that over the last couple of months, an investor would have lost money regardless if he bought the bull market of bear market ETF.
SKF is Pro Shares’ ultra short financial ETF which is designed to mimic the inverse of the Dow Jones US Financial Index with 2X leverage. When the underlying index drops 1%, SKF is expected to rise 2%. This ETF bets against the financial sector.
UYG is the Ultra financial ETF which mimics the Dow Jones Financial Index with 2X the leverage. This ETF is betting the market will go up. When the index is up 1%, this ETF should be up 2%.
The chart below shows the Financial index making a new low in February. One would assume that UYG, the bullish ETF, would also be making new lows and it did. Further, we’d assumed that SKF, the ETF which bets against the index, would be making new highs but it didn’t.
Since November both ETF’s have lost money. Heads you lose; tails you lose.
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